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March 30, 2020

Many business owners are making hard decisions lately.  Will I have to lay off employees?  Should I take a loan?  Which loan do I qualify for?  How do the unemployment rules work for me or my staff?  Are there tax credits I can take?

The CARES Act, signed into law last Friday, is filled with options designed to help businesses endure the coronavirus pandemic.  Trouble is…it’s 880 pages long.  Now, the Tax Cuts & Jobs Act was huge, but this is different – we need answers now to help people.  Luckily, many people are trying to help. 

Make sure to visit Eide Bailly’s COVID-19 Resource Center.  We house a wealth of information and insight on how to traverse this unprecedented time.

Loans and Loan Forgiveness

Paycheck Protection Program Loans

The CARES Act pumped $350B into a new SBA loan under the Paycheck Protection Program (PPP or SBA 7(a) loans).  Qualifying small businesses will get a PPP loan from a bank with the government guaranteeing 100%.  PPP loans have a maximum interest rate of 4% and 10-year maturity, with no payments for at least six months with deferral up to 1 year, and no prepayment penalty.

The amount of loan available will be dependent upon the lesser of $10 million or 2.5 x the prior one-year period monthly payroll costs (including healthcare) with a cap on wages at $100,000 per employee.

The PPP loans are getting a lot of attention due to the potential tax-free forgiveness for certain expenses incurred in the 8-week period after obtaining the loan.  Run the numbers to see if this program could be right for your business.  Note if this program is used, the new Employer Retention Credit cannot be.

A good look at the details of the PPP loan is laid out by the U.S. Chamber of Commerce here.

Paycheck Protection Program – Devilish Details – Some Uncertainty – Peter J Reilly, Forbes. “One of the big unknowns is how quickly the banks will be able to dish out the money. Still the loan is a good deal even if you have to pay some of it back.”

Economic Injury Disaster Loan (EIDL)

Disaster loans have been available for years but now they are available for the COVID-19 crisis as well.

EIDL Loans are available up to $2 million with 30-year term at an interest rate of 3.75% for small businesses and 2.75% for nonprofits.  Payments on EIDLs are deferred for one year from the loan date. 

The CARES Act also created an important emergency cash advance portion of the EIDL of up to $10,000 that can be forgiven if spent on qualifying COVID-19 related costs.  Amounts forgiven under the EIDL will offset any potential forgiveness under the Paycheck Protection Program loan forgiveness.  Both the PPP loan and EIDL can be obtained, if they are used to pay for different expenses.

More information and application for the EIDL (and other SBA loans) can be found here.

Getting Cash For Your Small Business Through The CARES Act – Brian Thompson, Forbes. “My advice: apply as soon as you can.”

Also check out the U.S. Senate Committee on Small Business & Entrepreneurship Guide here.

SBA Debt Relief

If you have an existing loan under the current (now old) SBA Section 7(a) loan, the SBA will pay the principal and interest for a period of six months.

Check out the Hawaiian Senator’s recap here.  Hawai’i has it all – beauty and brains!

“Debt relief is automatic, but you should check in with your lender.  Under the new law, the SBA is directed to make payments within 30 days of the date on which the first payment is due.”

State Programs

Make sure to check out your state's response to COVID-19.  Just as an example, and because I'm an Iowa girl, Iowa has two new grant programs geared towards helping small businesses affected by coronavirus disruption. One for small businesses and another just for sole proprietors with no employees

Other Tax News

After First Holding to April 15 Due Dates, IRS Now Pushes Form 709 Due Date to July 15 – Ed Zollars, Current Federal Tax Developments. “Gift and generation skipping transfer tax returns originally due on April 15, 2020 will now be due on July 15, 2020.”

Coronavirus paid sick leave and family leave guidance issued – Sally P. Schreiber, The Tax Adviser

CARES Act: Recovery Check FAQ – Senator Grassley. “The only administrative offset that will be enforced applies to those who have past due child support payments that the states have reported to the Treasury Department.”

Likely Future Republican Tax Proposals - Benjamin M. Willis, Tax Notes ($). "It is clear legislation will focus on employees in heavily affected industries such as healthcare, travel, transportation, hospitality, education, lodging, and energy industries."

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